Please pardon the feeble pun, but here’s an order from the formerly whimsical Judge Wherry (whimsical until Judge Posner in Seventh Circuit walloped him; see my blogpost “There Goes the Neighborhood,” 9/3/13) that brings me joy.

It’s Estate of Jane H. Gudie, Deceased Trust, Mary Helen Norberg, Trustee, Docket No. 19422-13L, filed 8/12/16, a day when I need some happy news.

I’m bouncing on the Amtrak Adirondack, late as usual, returning from a delightful Tale of Three Mountains, the Berkshires, the Green Mountains and the White Mountains, visiting family and touring beautiful country. Coming home after a great vacation is the worst, even with tickets to Yankee Stadium awaiting me.

When I first blogged this case, it looked like Mary Helen was bound for a bad day in Tax Court. The annuity-for-assets setup crafted by Mr Robert P. Hess of unstated qualifications looked like a sitting cliché.

But now the dénoument looks happier. Judge Wherry: “…the parties filed a Motion to Dismiss on the Grounds of Mootness stating that the gift tax at issue in this case for the year 1992 has been abated in full, including all penalties and interest.” Order, at p. 1.

And they get it.

And I said back in December, 2011, “Don’t expect surprises at trial or in the decision.” See my blogpost “The Case of the Reluctant Administrator,” 12/1/11.

I’m glad I was wrong, and I’d love to know more, but on a summer Friday with nothing simmering on the 400 Second Street, NW, burner, I’m glad to have it.

Jeffrey A. Wolf, Docket No. 23980-13 L, filed 8/11/16, has a really tough situation. He’s been badly injured. His petition from a NOD off a CDP has been adjourned three times. IRS wants an order to show cause why Jeff shouldn’t accept IRS’ 24 pages of stipulated facts. Pretrial briefs are due September 6. Trial is set for September 19.

And Jeff’s attorney moves for another adjournment to September 9 to respond to the OSC motion because “…’I will be out of the country and not returning to New York City until August 31, 2016’. The motion does not explain the reason counsel must be out of the country, nor whether that absence was scheduled before or after we issued our standing pretrial order. The motion does not attempt to reconcile his requested September 9 extension with the parties’ current September 6 pretrial deadlines.” Order, at p. 2.

In State Court, this would draw judicial lightning like Benny Franklin’s kite.

But Jeff has drawn that Obliging Jurist, Judge David Gustafson.

“The Court assumes the accuracy of petitioner’s counsel’s statements about his client’s condition, and the circumstances he describes are worthy of great sympathy.” Order, at p. 2.

He’s obliging, sympathetic–a real mensch, if I may use a technical term.

But I’m sure Ch J. L. Paige (“Iron Fist”) Marvel is looking over his shoulder.

“However, petitioner’s medical difficulties do not render the case moot nor, as far as we can tell, form a basis for resolving the case. One way or another, the Tax Court must decide the issues committed to its jurisdiction. If petitioner’s condition will not improve on a foreseeable schedule, then the case must be resolved in the best way possible.” Order, at p. 2.

And it doesn’t look like Jeff’s medical problems will go away any time soon.

So no continuance for absentee counsel.

“While counsel did not receive the Rule 91(f) motion until August 5, he has known since April 2016 that the parties must file a stipulation of facts at the beginning of trial, and he should have been working on that important task in any event. A review of respondent’s proposed stipulations shows that many of the assertions are of such a nature that petitioner’s counsel surely knows already what petitioner’s position is. If there are particular assertions therein for which a substantive response by August 26 is truly impossible, then petitioner’s response to the order to show cause can explain that. (This would presumably not include facts as to which the parties’ positions have been well ventilated in the briefing of the previous motions.) But petitioner’s response is needed by August 26 in order to maximize the possibility that the case can proceed on its current schedule.” Order, at p. 2 (Emphasis by the Court).

I’m out of town, too, but I keep blogging. And I did so while out of the country last fall. And incidentally practicing law as well. So do most of my colleagues; nothing special.

Judge Gale almost quotes The Bard in Estate Of George H. Bartell, Jr. Deceased, George David Bartell and Jean Louise Bartell Barber, Co-Personal Representatives and Estate Of Elizabeth Bartell, Deceased, George David Bartell and Jean Louise Bartell Barber, Co-Personal Representatives, et al., 147 T. C. 5, filed 8/10/16.

The Bartells ran a drugstore chain in Washington State for 100 years, but Walgreens and Rite-Aid were closing in, and the supermarkets in the strip malls wherein the Bartells flogged their medicaments were also getting in on the action, so the Bartells decided to go free-standing and ditch the strippers.

But this meant big capital gains. Jean Louise’s spouse was a broker and he told her the magic numbers: 1031. Real property swapped for real property is tax-free for income tax purposes.

See my blogpost “Form Matters – Part Deux,” 2/15/11, for the importance of magic language in such a deal.

The Bartells were doing a reverse 1031. They would buy the new before selling the old. They found a QI who knew how to paper the transaction.

The Bartells bankrolled the QI’s subsidiary AT (Accommodation Titleholder), which was a LLC shell with a loan from KeyBank (I represented them years ago) the Bartells guaranteed. Then the Bartells acted as construction manager for building their new store on the acquired land, negotiated easements and building permits, and triple-net-leased it from the AT until they could dump the old property.

This they did, using the proceeds from the dumped property to pay off KeyBank and get the new store from the AT.

IRS said taxable sale. Bartells said 1031.

There’s no question what happened. But did the Bartells do a deal with themselves?

“It has been observed that the ‘very essence of an exchange is the transfer of property between owners, while the mark of a sale is the receipt of cash for the property’. Carlton v. United States, 385 F.2d 238, 242 (5th Cir. 1967). A corollary of the requirement of a reciprocal transfer of property between owners is that the taxpayer not have owned the property purportedly received in the exchange before the exchange occurs; if he has, he has engaged in a nonreciprocal exchange with himself. ‘A taxpayer cannot engage in an exchange with himself; an exchange ordinarily requires a “reciprocal transfer of property, as distinguished from a transfer of property for money consideration”.’ DeCleene v. Commissioner, 115 T.C. 457, 469 (2000) (citation omitted).” 147 T. C. 5, at p. 32.

Note that the Bartells’ deals went down prior to Rev. Proc. 2000-37, 2000-40 I.R.B. 308, which gave us the 45 days to identify, 180 days to close rules. And their timing wouldn’t fly under today’s rules.

IRS wants benefits-and-burdens to determine ownership, and certainly the AT had none, as the Bartells indemnified them from all the ills that flesh is heir to. And indemnified KeyBank from jibsail to taffrail.

But the Bartells are Golsenized to Ninth Circuit, and Ninth Circuit expressly rejected benefits-and-burdens in the 1031 context.

The whole point of 1031, says Judge Gale, is form. As my abovecited blogpost noted.

In fact, there are Tax Court cases (see 147 T. C. 5, at p. 44) that permit the transferor to choose both relinquished and replacement properties, negotiate the deals, do the construction, and advance the money.

1031ers have much latitude. In the one benefits-and-burdens case that got the Tax Court nod, the transferor never used a QI. His deal was a give-and-go with the transferee, where the transferee got title subject to a buyback but never really had any skin in the game.

When the QI business got started with the 1986 Code, I wrote a comment to IRS that all Congress had done was create a new industry. And how!

“…where a section 1031 exchange is contemplated from the outset and a third-party exchange facilitator, rather than the taxpayer, takes title to the replacement property before the exchange, the exchange facilitator need not assume the benefits and burdens of ownership of the replacement property in order to be treated as its owner for section 1031 purposes before the exchange.” 147 T. C. 5, at pp. 58-59 (Footnote omitted).

And IRS’ argument that the cases involve reverse 1031s (old first, new second) and not forward 1031s (new first, old second), meets with a mox nix from Judge Gale.

And remember that broad latitude.

Now the Bartells did net-lease and run the replacement property before taking title and before selling the relinquished property, which no reported case ever dealt with, but broad latitude wins again.

There’s a lot of good language in this case for those fighting 1031s. Read it, and add the right quotes to your memo of law database.

Karen Kaplan, 2016 T. C. Memo. 149, filed 8/9/16, is an artist, art teacher and investor. She is also a habitual late-filer, but that isn’t the point. It’s also beside the point that Section 6214(b) bars Karen’s claim that her prior years’ overpayments should offset her tax year’s liability for the year at issue.

What is the point (and I can hear my readers saying “At last!”) is that an artist who contributes her own works to a charity, and can substantiate the contribution sufficiently for Section 170 and Reg. 1.170A-13(b)(1), is limited to a deduction not for the retail or fair market value of the contributed artwork, but only for what would amount to cost of goods sold.

Judge Vasquez: “…if the contributed property would produce ordinary income to the donor if sold at its fair market value, then the amount allowed as a deduction is limited to the donor’s cost or basis in the contributed property. Sec. 170(e)(1)(A); Chronicle Publ’g Co. v. Commissioner, 97 T.C. 445, 447-448 (1991). Such ordinary income property includes artwork created by the donor and property held by the donor primarily for sale to customers in the ordinary course of the donor’s trade or business. Sec. 1.170A-4(b)(1), Income Tax Regs.” 2016 T. C. Memo. 149, at pp. 12-13.

Karen can’t substantiate the cost of the materials needed for her hand-painted postcards, and Judge Vasquez can’t find enough in the record to Cohanize her into a Rule 155 beancount on that score.

“Considering that petitioner is an artist, that she created the postcards, and that she included her printed name on the reverse side with a copyright symbol, we believe that the postcards are similar to inventory and therefore ordinary income property limited to a cost or basis deduction. See sec. 170(e)(1)(A). Unfortunately for petitioner, we are unable to determine from the record her cost or basis in the postcards. Despite being given the opportunity at trial to provide such information, petitioner did not provide any relevant testimony or other evidence on this issue. Accordingly, petitioner is not entitled to deductions for her postcard contributions.” 2016 T. C. Memo. 149, at p. 13.

Takeaway for artists- Save the receipts for any materials you use. Could be very handy.

A strong entry in the Taishoff Best Excuse sweepstakes comes from Little Mountain Corporation, 2016 T. C. Memo. 147, filed 8/8/16.

When Judge Kerrigan is confronted with a $896K deduction for “consulting expenses,” paid by a corporation with no employees (so no W-2s), and which issued no 1099s, and which paid no dividends, she naturally asks “whassup wit’ that?” Especially since the corporation had over $1 million in gross profits.

So she gets minutes of a special meeting of directors (all family members), whereat it is agreed that another family member is to be paid as a consultant on a “by-the-job” basis, and to receive a bonus based upon stated gross income.

None of the invoices for the “consulting expenses” itemize what services were performed, nor could either the officer who made the payments nor the family member who received them testify with specificity what was done.

All the invoices for consulting fees requested checks in payment be written for less than $10K each. And be payable to “cash.” And were cashed by various individuals who had no apparent relationship to the corporation.

Would it surprise you to learn that the consultant didn’t bother to file a tax return for the years at issue because he “wouldn’t call it compensation.” 2016 T. C. Memo.147, at p. 9. (Name omitted.) (Footnote omitted, but it’s too good to skip, so here it is: “Mr. S’ testimony concerning his failure to have filed Federal income tax returns for the relevant periods is certainly consistent with the position he has taken on this point.” 2016 T. C. Memo. 147, at p. 9, footnote 3).(Name omitted).

You can see where this is going, so you might well wonder why I’m blogging this after a day of driving through the White Mountains, at peace with the world.

Well, I’m blogging this because of the title, derived from the testimony of the family member who wrote those checks.

“Petitioner provided no consulting fee schedule, hourly rate, or specific breakdown of Mr. S’ tasks. No written contract existed between petitioner and AFC or Mr. S. Mrs. S testified that there was only an oral agreement because ‘that’s how it’s done a lot of times in the South’.” 2016 T. C. Memo. 147, at p. 5. (Names omitted).

In the North, too. Sometimes.

Judge Holmes examines whether Appeals did what the old English folk song directed: “Consider, good cow, consider.”

And The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Imperturbable, Indomitable, Indefatigable, Illustrious, Incontrovertible, Ineluctable, Indispensable and Ineffable Foe of the Partitive Genitive, and Old China Hand, finds Appeals did so. Even a glance seems to be sufficient.

And it sinks poor Rudolfo B. Zapata, Docket No. 28931-09L, filed 8/5/16.

Rudy had health problems. His return for the year at issue showed tax due, that he didn’t pay, and Rudy admitted he owed. So no SNOD necessary. IRS hits Rudy with a NITL, he asks for a CDP, gets bounced, and petitions.

Judge Holmes was concerned that Rudy’s health problems might have rendered him financially disabled. See my blogpost “Elected, Depressed and Disabled,” 11/12/14, for the backstory on financial disability.

Anyway, Rudy claimed an overpayment for a subsequent year wiped out the shortfall for the year at issue. But the SOL on lookbacks would bar this.

Unless.

Unless Rudy’s financial disability tolled the SOL. Judge Holmes, you’ll remember, is a great fan of remands to Appeals. So he bucks Rudy back, and asks Appeals to check out Rudy’s disability. Appeals bounces Rudy yet again.

“Our standard of review depends on whether Mr. Zapata’s [year at issue] tax liability is at issue. And, although Mr.Zapata conceded his [year at issue] tax liability, there’s a question lurking here of whether Mr. Zapata’s request that his [later but barred] overpayment affects his [year at issue] tax liability in such a way that the [year at issue] liability is thereby ‘at issue.’ This has turned out to be a difficult question that remains unsettled in our Court, Estate of Adell v. Commissioner, 107 T.C.M. (CCH) 1463, 1466 (2014) (delicately noting ‘lack of uniformity’ in cases). If the proper crediting of one year’s overpayment is an issue of the ‘underlying liability,’ the standard would be de novo. If it isn’t, the standard would be abuse of discretion. See, e.g., Kovacevich v. Commissioner, 98 T.C.M. (CCH) 1, 4-5 (2009). This would mean that we look to see if the Commissioner’s decision was based on an error of law, rested on a clearly erroneous finding of fact, whether he ruled irrationally, or otherwise acted arbitrarily or capriciously. Antioco v. Commissioner, 105 T.C.M. (CCH) 1234, 1237 (2013); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).” Order, at p. 2.

Judge Holmes is a grandmaster of the judicial duck. He ducks here, deciding he doesn’t need to decide, because whatever is the standard, IRS wins. “The Appeals officer conducting the hearing must verify that the requirements of applicable law and administrative procedures were met, consider issues properly raised by the taxpayer, and determine if the collection action fairly balances the need for efficient tax collection with the taxpayer’s legitimate concerns. See IRC§6330(c)(3).” Order, at p. 2 (Emphasis by the Court).

“The key question is whether the Appeals officer considered the issues properly raised by Mr. Zapata. There was only one on remand: Did Mr. Zapata qualify for a tolling of the statute of limitations that would otherwise bar a claim for refund or using his right to a refund to offset his tax liability for another year? The Code section that’s relevant here is section 6511(h), which tolls the statute for ‘financially disabled’ taxpayers. Congress told the Commissioner to issue a procedure to implement this section and there is a revenue procedure that does so. See Rev. Proc. 99-21, 1999-17 C.B. 960 (listing requirements to toll the statute). The administrative record here shows that Mr. Zapata submitted a note from his doctor, but we have to agree with IRS Appeals that — under either standard of review–it did not meet the requirements of the revenue procedure. It did not, for example describe Mr. Zapata’s impairment, link it to an inability to manage his financial affairs, or provide any specific time period when he could not manage his affairs. We are somewhat concerned that the Appeals officer appears to have barely acknowledged the subject during her communication with Mr. Zapata’s power of attorney [sic], and even told the power of attorney [sic] that the ‘only concern’ for the hearing was the [year at issue] tax debt and that the…refund should be addressed with another department. The CDP hearing might have been a helpful time to discuss the medical condition and the highly specific requirements for a doctor’s note, but we acknowledge that the Appeals officer is obligated only to consider the issue. She made no error on the record before her that Mr. Zapata’s proof of financial disability did not meet the requirements of the revenue procedure. Her determination upholding the levy on Mr. Zapata’s property was therefore not an abuse of discretion.” Order, at p. 3.

So we have an AO who has a docket to clear, a doctor who is by no means an expert on Rev. Proc. 99-21, 1999-17 C. B. 960, and a taxpayer (who was certainly disabled at one point) who puts in no answering papers on IRS’ summary J motion.

Great result.

BTW, Judge, a power of attorney is a piece of paper, sometimes also known as Form 2848; the person who acts for another by virtue of the power conferred by said piece of paper is denominated therein as the “agent.”

That’s the Elizabeth (Akers) Allen classic tune IRS is singing in Curtis W. Royall, Sr. & Vanessa Royall, Docket No. 3921-16S, filed 8/4/16, as STJ Diana L. Leyden finds fault with IRS’ chronology in her maiden appearance on this blog.

As I said when STJ Di first was appointed to Tax Court back in June, “I have no doubt STJ Leyden will give the taxpayers a fair shake in Tax Court.”

Well, it seems that Curt and Van are all paid up for the year for which the SNOD at issue was issued.

But STJ Di wants to know when they were so paid up. If before the SNOD issued, then case dismissed for invalidity of SNOD; ya can’t have a deficiency if ya don’t owe anything. If after, SNOD was valid because deficiency was unpaid at issuance, but case must be dismissed as moot because now nothing is due.

IRS got the dates wrong. “…respondent [IRS] filed a Motion To Dismiss for Lack of Jurisdiction on the ground that the notice of deficiency for petitioners’ taxable year…is invalid because petitioners paid the tax liability that is the subject of the notice of deficiency on which this case is based prior to the issuance of that notice. Respondent notes that the notice of deficiency was issued on November 30, 2015, and petitioners paid the amount…on April 23, 2016, which date is not prior to issuance of the notice.” Order, at p. 1.

So IRS, produce the transcript showing when Curt and Van paid up.

I look for more good blogfodder from sharp-eyed STJ Di.

Footnote to the foregoing (9/6/16):

IRS “…filed First Supplement to Motion to Dismiss for Lack of Jurisdiction and attached a transcript of account…that stated the correct date for the payment of the tax liability. The transcript of account…showed that a payment was made before the notice of deficiency was issued.” Order (same Docket No.), filed 9/6/16, at p. 1. So STJ Di kicks the case for invalid SNOD.

They were signed by the right person in the wrong capacity. Did the agreements extend the SOL?

Let’s ask The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Indefatigable, Illustrious, Incontrovertible, Irrefragable, Ineluctable, Ineffable Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

His answer is found in a designated hitter, Continuing Life Communities Thousand Oaks LLC, Spieker CLC, LLC, Tax Matters Partner, Docket No. 4805-15, filed 8/3/16.

The FPAA would be time-barred, save for the extensions signed by Warren Speiker. But the Continuing Lifers claim Warren signed as TMP of Speiker CLC, LLC. Except he wasn’t. The TMP of Speiker CLC, LLC was The Speiker Living Trust. Now Warren was a co-trustee who could bind the trust. Except he never signed as co-trustee.

In other words, “When Mr. Spieker signed each extension he did so with this signature line: ‘Warren E. Spieker, Jr., Tax Matters Partner of Spieker CLC, LLC, Tax Matters Partner of Continuing Life Communities Thousand Oaks, LLC.’ Continuing Life correctly notes–and there’s no dispute about this fact either — that the Trust, not Warren Spieker, is the TMP of Spieker LLC. Continuing Life therefore believes the correct signature line should’ve been: ‘Warren E. Spieker, Jr., Trustee of the Spieker Living Trust as Manager of Spieker CLC, LLC, Tax Matters Partner of Continuing Life Communities Thousand Oaks, LLC.’ It argues the wrong party signed the extensions and they are invalid.” Order, at pp. 2-3.

“We now need to decide that age-old question: What’s in a name?” Order, at p. 3.

Partnerships and limited liability companies can be complex structures, and there may be entities within entities. But ultimately there must be a human being to sign something.

So the issue is “who,” not “how.”

“Here, it was ‘Warren Spieker’ who signed the forms, and ‘Warren Spieker’ who had the actual authority to sign those forms. Continuing Life has failed to identify a single fact in dispute, material or otherwise, regarding Mr. Spieker’s authority to bind the Trust as its trustee, the Trust’s authority to bind SCLC as its manager, or SCLC’s authority as Continuing Life’s TMP to execute Forms 872-P to extend the statute of limitations. That the signature line misstated the source of that authority is, under our precedents, no reason to hold them ineffective.” Order, at p. 5.

Takeaway: It is more important to be a “personage,” than to be “of noble rank and title, a dignified and potent officer, whose functions are particularly vital!”

His Honor Big Julie, Judge Julian I Jacobs (hereinafter HHBJJJIJ) is playing the old UK party game, and the big winner is Whistleblower 21276-13W, 147 T. C. 4, filed 8/3/16.

You remember Whistleblower 21276-13W, right? If not, read my blogpost “Sunset in Ogden,” 6/2/15.

Well, blower and Mrs. blower are back. And IRS, in a burst of magnanimity, concedes that blower and Mrs. blower are entitled to 24% of collected proceeds.

But the dude and friends went down criminally as well as civilly, and coughed up “$74,131,694 in tax restitution, a criminal fine, and civil forfeitures to the Government under 18 U.S.C. sec 3571.” 147 T. C. 4, at p. 4.

IRS will only go for 24% of the $20 million piece of the $74 million-plus that was tax restitution. Blower and Mrs. Blower want 24% of the whole enchilada.

It’s all about Section 7623(b). Both IRS and the blowers claim the language is clear, and the post-2014 regulations don’t apply, as the blowers put in their claim before.

Some versions of clear language is clearer than others.

“The language of section 7623(b)(1) is plain. And ‘[w]here * * * the statute’s language is plain, “the sole function of the courts is to enforce it according to its terms.”’ We therefore must ‘give effect to the will of Congress, and where its will has been expressed in reasonably plain terms, ‘that language must ordinarily be regarded as conclusive.’” 147 T.C. 4, at pp. 10-11. (Citations omitted).

Section 7623 is expansive, so whatever IRS does to grab money from dodgers and evaders is up for grabs. But the statute doesn’t define what “collected proceeds” might be. So HHBJJJIJ goes for plain meaning.

Well, although HHBJJJIJ is careful that interpreting legislation does not become creating legislation, he decides that “proceeds” means more than just cash, and “collected” means whatever you got.

“We are leery of arbitrarily limiting the meaning of an expansive and general term such as ‘collected proceeds’. In drafting section 7623(b)(1), Congress could have provided that the whistleblower’s award is to be based on taxes and other amounts assessed and collected by the IRS under title 26. But it did not. Instead, Congress chose to use a sweeping term ‘collected proceeds’ as the basis of the award. The context of the statute in which the term ‘collected proceeds’ is used reinforces our conclusion. Congress revealed its intent that the mandatory whistleblower program be an expansive rewards program by including in section 7623(b)(1) other broad and sweeping terms such as ‘any administrative or judicial action’, ‘any related actions’, and ‘any settlement in response to such action.’” 147 T. C. 4, at p. 14.

“Respondent [IRS] claims the phrase ‘detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws’, as used in section 7623(a)(2), is essentially synonymous with the phrase ‘detecting underpayments of tax’, as used in section 7623(a)(1), and that both phrases refer to taxes assessed and collected under a provision of title 26. Consequently, according to respondent, only amounts assessed and collected under a provision of title 26 may be used in funding the award to a whistleblower.” 147 T. C. 4, at pp. 14-15.

That doesn’t fly. Criminal offenses under Title 18 are mentioned in Title 26.

“We find the reference in section 6531(8) to 18 U.S.C. sec. 371 to be especially illuminating inasmuch as the targeted taxpayer pleaded guilty to conspiracy to defraud the IRS, file false Federal income tax returns, and evade Federal income tax, in violation of 18 U.S.C. sec. 371.  Finally, the phrase ‘internal revenue laws’ dates from the earliest version of the whistleblower statute enacted in 1867. At that time, the modern title 26 did not exist; internal revenue laws meant all revenue laws. We think it erroneous to impose a post facto restriction on the meaning of the phrase not intended by Congress when it enacted the legislation. In sum, the phrase ‘internal revenue laws’ is not limited to those laws codified in title 26.” 147 T. C. 4, at pp. 17-18. (Footnote omitted).

IRS’ last argument is that “including” doesn’t mean “including.”

This gets the Tax Court equivalent of a Taishoff “Oh please.”

There’s no conflict with the case I blogged in the abovecited blogpost. FBAR penalties only exist in Title 31.

“In sum, we herein hold that the phrase ‘collected proceeds’ is sweeping in scope and is not limited to amounts assessed and collected under title 26. To paraphrase the Court of Appeals: Congress’ not supplementing the comprehensive phrase ‘collected proceeds’ with an exclamatory ‘and we mean all proceeds collected’ does not lessen the force of the statute’s plain language.” 147 T. C. 4, at pp. 23-24.

Section 7623(a) is discretionary; Section 7623(b) is mandatory. IRS tries to conflate these; HHBJJJIJ deflates IRS’ arguments.

Blower and Mrs. blower hit the jackpot.

Footnote- I want to give a Taishoff “Good Job, First Class” to blower’s and Mrs. blower’s counsel, but it must be an anonymous award, because HHBJJJIJ has sealed counsel’s identity to protect the innocent.

The section 162 ordinary-and-necessaries for those seeking education unreimbursed employee business expenses require the seeker to be presently engaged in a trade or business while seeking education to be more and better presently engaged.

But what happens when the seeker loses the job, while still being educated?

Judge Nega has an answer for that, and gives us a useful look at how to evaluate the facts, in Alex Kopaigora and Elizabeth S. Kopaigora, 2016 T. C. Sum. Op. 35, filed 8/2/16.

Alex was a manager for Marriott, running the show at their hostellerie at LAX. While so running, he was taking an executive MBA at BYU. Alex documented all his expenses, and IRS has no problem with the documentation. IRS claims that Alex lost his job with Marriott (which Judge Nega says was unjustified, but Alex nonetheless was out of a job). And IRS also claims that the executive MBA fitted him for a different job, even though Alex got a new job doing what he was doing at his old job.

Judge Nega: “A taxpayer may be engaged in a trade or business, although unemployed, if the taxpayer was previously involved in and actively sought to continue in that trade or business while pursuing a defined degree program related to his or her line of work. Furner v. Commissioner, 393 F.2d 292, 294 (7th Cir. 1968) (teacher continued to carry on her trade or business while simultaneously pursuing a graduate degree program and actively seeking employment in her line of work); rev’g 47 T.C. 165 (1966); see also Picknally v. Commissioner, T.C. Memo. 1977-321; Sherman v. Commissioner, T.C. Memo. 1977-301.” 2016 T. C. Sum. Op. 35, at p. 6.

As for the executive MBA fitting Alex for a new line of work, Judge Nega rejects that.

“When evaluating whether education expenses qualify the taxpayer for a new trade or business, the Court uses a ‘commonsense approach’ comparing ‘the types of tasks and activities which the taxpayer was qualified to perform before the acquisition of a particular title or degree, and those which he is qualified to perform afterwards.’” 2016 T. C. Sum. Op. 35, at p. 6. (Citations omitted, but get them for your next memo of law).

The aim is to maintain or improve skills, and you can deduct travel, meals and lodging expenses if you go on the road to education.

Judge Nega went over Alex’s courseload. “The courses petitioner chose to fulfill his degree requirements did not qualify him for a new trade or business because he was not qualified to perform new tasks or activities with the conferral of his degree. Instead, petitioner chose courses in a line of study that he was familiar with–management and finance. Even though petitioner took a few courses that were outside this scope, we do not believe that these courses by themselves could have prepared him to enter a new trade or business.” 2016 T. C. Sum. Op. 35, at p. 9.

And while unemployed, Alex kept on studying and looking for work. His new job was in the same line as the old, and IRS didn’t show that the executive MBA was required for the new job.

IRS waits until it’s brief time before claiming that Alex deducted some expenses in the wrong year, and while that might ordinarily be off the table as an ambush, Alex admitted he got it wrong, after Judge Nega reopened the record to let him show he hadn’t.